The Office of General Counsel issued the following informal opinion on
January 21, 2004, representing the position of the New York State Insurance Department.

Re: Policy Issued to an Insurer and its Agents and the
Representatives of its Affiliate, a Securities Broker/Dealer

Questions Presented:

1. May a policy that insures a life insurance company, its insurance
agents and the representatives of the insurers affiliate, a securities
broker/dealer, be issued as a group personal excess insurance policy under N.Y. Ins. Law
§ 3445 (McKinney 2000)?

2. May a life insurance company or securities broker/dealer require
that its agents or representatives purchase insurance under a group insurance policy
insuring the life insurer, its insurance agents and the broker/dealers
representatives?

3. May a policy that insures a life insurance company, its insurance
agents and the broker/dealers representatives provide coverage subject to a group
aggregate liability limit?

2. No, a life insurance company or securities broker/dealer may not
require that its agents or representatives purchase insurance under a group insurance
policy insuring the life insurer, its insurance agents and the broker/dealers
representatives.

3. No, a policy that insures a life insurance company, its insurance
agents and the broker/dealers representatives may not provide coverage subject to a
group aggregate liability limit.

Facts:

The Department received a complaint from an insurance agent of a life
insurance company. The agent is also a securities broker/dealer representative for a
securities affiliate of the life insurer. The agent had been told by the life insurer that
he was required to purchase liability insurance from XYZ Casualty Insurance Co.
("XYZ"), a New York authorized insurer, even though he already had liability
insurance. The policy provided coverage for both the life insurance company and its agents
and the securities affiliates representatives. The policy did not insure the
securities affiliate itself and a separate policy was issued to it. Unlike the
agents existing policy, which provided coverage regardless of which insurer or
broker/dealer the insured was affiliated with, the XYZ policy provided coverage only in
connection with transactions involving the securities affiliate. (Apparently, the
representatives are not allowed to represent other broker/dealers.) However, the policy
provided coverage to an insurance agent regardless of whether the agent was acting on
behalf of the life insurer. The policy also contained an overall aggregate liability limit
so that a particular agent or representatives coverage could be exhausted by claims
against other agents or representatives.

During discussions, the life insurance company advised us that prior to
the policy period August 1, 2002 through August 1, 2003, the master policy had been issued
to the life insurance company outside of New York but that the 2002-2003 policy had been
issued to it in New York in error. In addition, prior to the 2002-2003 year, coverage
under the policy was optional and the life insurance company had not required its agents
to purchase the coverage. XYZ stated that the requirement to purchase the XYZ policy had
been imposed by the insurance company and not by XYZ.

Based upon our review of the facts, we advised the inquirer that XYZ
had issued an illegal group insurance policy in New York and that the only way the
coverage could be offered on a group basis was on a purchasing group basis. However, even
if the policy was restructured and a purchasing group was formed, the policy may not
contain a group aggregate nor may the group policyholder (the life insurance company) or
the securities affiliate require that the members of the group (the agents and
representatives) purchase the insurance.

In a July 11, 2003 letter, and in subsequent discussions, XYZ advised
us that the renewal policy would be issued on a purchasing group basis. Further, XYZ
stated that the policy will not have a group aggregate limit. Both the life insurance
company and the securities affiliate have agreed that they will not mandate that the
agents or representatives be covered under the policy.

Although XYZ has agreed to revise the policy in accordance with our
conversations, it requested that we provide it with a written response regarding the legal
issues involved. In particular, XYZ wished us to address why the Department has concluded
that the policy could not be written under N.Y. Ins. Law § 3445 (McKinney 2000)
since XYZ believes that N. Y. Comp. Codes R. & Regs., tit. 11, § 153.0 et
seq. (1995) (Regulation No. 135) does not apply to § 3445.

This opinion is limited to addressing the questions posed by XYZ and by
the agent; specifically, whether the policy may be issued on a group excess or other group
basis; whether the group policyholder or the insurer may require the agents and
representatives to be covered under the policy; and whether there may be a group
aggregate.

Analysis:

Regulation No. 135 was promulgated in 1989 to clearly establish rules
defining when a property/casualty policy would be considered to be a group policy and to
establish rules in regard to all permissible types of property/casualty group insurance
that were permitted in New York at that time. Specifically, in 1989, group
property/casualty insurance was authorized in New York only in regard to
not-for-profit/tax-exempt entities and public entities pursuant to N.Y. Ins. Law § 3435
(McKinney 2000) and purchasing groups pursuant to N.Y. Ins. Law Article 59 (McKinney 2000)
and the Federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq.
("LRRA"). Under the LRRA and Article 59, a purchasing group may obtain only
liability insurance for business-related liability on a group basis 1. See N.Y. Ins. Law
§ 5902 (McKinney 2000). Section 153.1(g) of Regulation No. 135 contains the
following definition of group policy:

(g) Group policy means:

(1) a policy underwritten and issued on a collective basis of:

(i) property/casualty insurance insuring the interests of two or more persons or
entities; or

(ii) liability insurance insuring a Federal purchasing group or its members;

(2) Where an insurer elects to issue a single policy with a first-named
insured and additional insureds, such policy shall not be considered a "group
policy" in regard to the following:

(i) corporations or other entities under common control as Section
107(a)(16) with regard to their related interests;

(ii) franchisors and franchisees with regard to their related
interests;

(iii) members of a joint venture or partnership, with regard to their
related interests;

(iv) family members but only for policies subject to Section 3425 of
the Insurance Law; or

(v) shared interests [as defined in § 153.1(s)], provided that such
shared interests exist among all additional insureds, and only to the extent of such
shared interests.

Under the foregoing definition, a single policy could have been issued
covering only the life insurance company and its securities affiliate, because they come
within the § 153.1(g)(2)(i) exception for corporations under common control. However, the
policy issued by XYZ to the live insurance company and its agents and the securities
affiliates representatives, constitutes a group insurance policy in New York because
the policy is underwritten and issued on a collective basis insuring the interests of two
or more persons or entities and none of the exceptions quoted above apply.

However, the policy could not have been issued on a group basis. The
group does not qualify as a group under § 3435, since the life insurance company and the
members of the group are not government entities or not-for-profit entities. Nor could the
purchasing group provisions be relied upon because a purchasing group had not been formed
and registered with the Department for this group in accordance with the requirements of
the LRRA and Article 59.

Since the enactment of Regulation No. 135, New York law has been
amended several times to permit additional forms of group property/casualty insurance. Two
of those provisions clearly have no applicability here: N.Y. Ins. Law § 3442 (McKinney
2000), regarding credit card, debit card, or checking account group policies; and N.Y.
Ins. Law § 3446 (McKinney 2000), regarding product or system group insurance
policies.

It is in regard to the remaining group provision, N.Y. Ins. Law § 3445
(McKinney 2000), which was added by Chapter 528 of the Laws of 1998, 2 that XYZ suggested would
be applicable to the ABC policy. Section 3445 authorizes "employer sponsored group
personal excess insurance." Subsection (a) thereof contains the following relevant
definitions:

(3) "Employee" means an individual or partner who receives or
has received income, wages or salaries from the employer.

(4) "Employer" means a person, partnership, corporation or
other entity which pays or has paid income, wages or salaries to a person or persons.

(5) Employer sponsored group personal excess insurance" means a
group policy of insurance providing the kind of insurance defined in paragraph thirteen or
fourteen of subsection (a) of section one thousand one hundred thirteen of this chapter,
written as an excess policy with premiums remitted by the employer, insuring groups of
active and/or retired employees designated by the employer.

(7) "Group policy" means employer sponsored group personal
excess insurance written for the designated employees of an employer.

According to the sponsors memorandum in support of A-10716A,
which was enacted as § 3445, "[e]mployer sponsored personal excess insurance is
property casualty [sic] insurance written as an excess policy for groups of employees.
This type of insurance is typically offered by employers and partnerships as an incentive
for employees and partners to participate in community activities such as serving on
volunteer not-for-profit boards, engaging in youth activities and fulfilling various other
civic duties." The memorandum further states that "[t]he proposed law will
create a narrow exception to the prohibition on group property casualty [sic] insurance on
behalf of [an employers] employees and past employees. Enactment of this legislation
would also help New York employers to remain competitive relative to businesses that offer
this coverage as a benefit, and encourage valued employees to participate in community
activities."

The policy does not provide excess coverage for employees as
contemplated by § 3445. The coverage is not excess but primary coverage. Nor does the
policy meet the express purpose behind the bill, that is, to provide an incentive for
employees and partners to participate in community affairs since the policy provides
errors and omissions insurance. Accordingly, it is our opinion that § 3445 does not
authorize the writing of the group policy in question.

We advised XYZ that, if a purchasing group were utilized in accordance
with the LRRA and Article 59, at least two aspects of the prior policy would have to be
modified.3
First, a group aggregate for New York members is not permissible under § 153.4(c), which
provides as follows:

(c) No group policy, master policy or certificate shall be subject to a
group or sub-group aggregate liability limit of any kind at any time, and any liability
limit applicable to a group member shall:

(1) be separate and apart from any liability limit to which any other
group member insured under the group policy may be subject; and

(2) operate unaffected by the experience of any other group member or
the overall experience of the group itself.

As indicated by this provision, the previous policy would not be
acceptable in that it was a group policy that is subject to an aggregate liability limit.
XYZ states that the 2003-2004 policy has eliminated the group aggregate in regard to the
New York members.

The other concern is the requirement by the life insurance
company/securities affiliate that all of the agents and representatives must purchase the
insurance. This is contrary to § 153.8, which provides:

No insurer shall provide coverage in regard to a group or quasi-group
program that:

(a) requires the purchase of insurance as a condition of group
membership or quasi-group participation; or

(b) imposes any penalty upon a group member or quasi-group participant
if insurance is not purchased.

Accordingly, the life insurance company/securities affiliate may not
require its agents to participate in the group program.4

It may be noted in passing that, even if § 3445 applied to the policy,
neither the compulsory coverage nor group aggregate would be permitted, because the
statute provides:

(d) An employee shall have the right to refuse coverage offered by an
employer under this section.

(e) Each policy written pursuant to this section shall provide separate
limits of coverage for each group member.

This response is limited to the specific issues raised by the agent and
that XYZ requested that we address. Since the policy has not been filed yet, we will not
address any other issues that may arise in connection with that filing.

For further information you may contact Principal Attorney Paul A.
Zuckerman at the New York City Office.

1 Specifically,
§ 5902(h) provides:

(h) "Liability" means legal liability for damages (including
costs of defense, legal costs and fees, and other claims expenses) because of injuries to
other persons, damage to their property, or other damage or loss to such other persons
resulting from or arising out of:

(1)(A) any business (whether profit or nonprofit), trade, product,
services (including professional services), premises, or operations; or

(B) any activity of any state or local government, or any agency or
political subdivision thereof; and

(2) does not include personal risk liability and an employer's
liability with respect to its employees other than legal liability under the Federal
Employers' Liability Act (45 U.S.C. s 51 et seq.).

2 There is another § 3445, which was added by Chapter 44 of the Laws of
1998, regarding windstorm insurance notice.

3 The inquirer advised us that a purchasing group has been formed and
registered in Illinois and is in the process of registering with New York, for the purpose
of providing the insurance to this group.

4 However, nothing in the Insurance Law or regulations thereunder
precludes ABC and PQR from requiring their New York agents or representatives to obtain
insurance coverage that equals or exceeds the purchasing group coverage, and which
provides vicarious liability coverage for ABC or PQR, as appropriate, or from requiring
that the agent or representative provide the company with notice if coverage is
terminated, for any reason. It is our understanding that ABC and PQR intend to implement
such requirements in lieu of mandatory CNA coverage.